A displaced man from south of Mosul gives the coordinates of Islamic State militants to Iraqi army, south of Mosul. REUTERS/Stringer

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By Stephanie Nebehay and Stephen Kalin

GENEVA/BAGHDAD (Reuters) - Hundreds of thousands of Iraqis in and around Mosul could be uprooted by the military assault to retake the city from Islamic State, the U.N. refugee agency UNHCR said on Tuesday.

"In Mosul we believe the displacement situation may be about to dramatically worsen," UNHCR spokesman Adrian Edwards told a briefing in Geneva, saying the agency needed more land for camps.

"The humanitarian impact of the military offensive is expected to be enormous, up to 1.2 million people could be affected."

About 3.4 million people have already been forced by conflict to leave their homes across Iraq, taking refuge in areas controlled by the government or in the Kurdish autonomous region east of Mosul, Islamic State's de facto capital.

With a population at one time as large as 2 million, Mosul is the largest city under the ultra-hardline militants' control in either Iraq or neighboring Syria.

Iraqi and Kurdish forces are gradually closing in on the city 400 km (250 miles) north of Baghdad, with air and ground support from a U.S.-led coalition.

Its fall would mark the effective defeat of Islamic State in Iraq, according to Prime Minister Haider al-Abadi.

"Mosul will be liberated in 2016. We have a plan to liberate Nineveh," he told a news conference on Tuesday in Baghdad. Nineveh is the province where Mosul is located and is home to a number of religious and ethnic groups including Christians, Turkmen and Kurds, in addition to Sunni Muslim Arabs.

Abadi said the government was in contact with all sides to find a way to manage Mosul, which he said would be done in cooperation between the federal government, the Kurdistan government, local residents and security forces.

The Iraqi military is battling its way up the Tigris river and has about 60 km (40 miles) left to reach the outskirts of Mosul; Kurdish peshmerga forces are deployed 30 km east of the city.

The Iraqi army said on Tuesday it had clashed with militants in the town of Qayyara, near an air base it plans to use as a main hub to support the Mosul offensive. The army captured the airfield last month and U.S. forces are helping to rehabilitate it.